Pension Privatization in Georgia: Accumulation Against Solidarity

Abstract

On 01 January 2019, a new pension plan was launched in Georgia. Oriented towards long-term accumulation and based on individual contributions, the plan represented a Georgian version of an otherwise typical private pension system where, together with the employee, the employer and the state (each contributing 2% of the employed person’s taxed salary to the pension account) participate in pension accumulation. With this reform, apart from improving the social conditions of the pensioners in Georgia, the government should have responded to ongoing demographic and fiscal challenges, according to which the number of pensioners will be constituting a quarter of the population by 2030, while the number of hired workers (payers of income tax) is already lower than the number of existing pensioners (Geostat 2018). Thus, considering the current budgetary parameters, a substantial increase in basic non-contributory pensions seems to be out of reach. This article discusses why Georgia’s pension reform cannot adequately meet the needs of current and future pensioners, the short- and long-term impacts that we should expect from ongoing reform, and what might be the real motivation behind this process. Additionally, we will contemplate the existing alternative and the problems with the political discussions around it.